Tuesday, Oct 19, 2021 • 18min
Retirement Bootcamp
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Whether you just didn’t save in your 20s or 30s or had to cash in your 401K and are starting from scratch, you can get your retirement back on track at any age. Today’s guest is 38 and hasn't started saving for retirement yet—and she's worried she's fallen behind. She's wondering how much money she should save, where she should keep that savings, and how to support herself and her family now while planning for their future.
Expert: Tiffany “The Budgetnista” Aliche. Buy her latest book, Get Good With Money, here.
Learn more about Simplified Employee Pensions Plans at https://www.irs.gov/retirement-plans/plan-sponsor/simplified-employee-pension-plan-sep
For more on the topics covered in today's episode, visit glamour.com/money.
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Talking about
Speakers
(2)
Samantha Barry
Tiffany Aliche
Transcript
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Break
00:17
I'd rather be comfortable later when I'm old and don't feel like working versus, you know, being too comfortable now. I think I'm pretty good. I just got to keep the momentum and maybe kick it up a notch. I'm honestly feeling like I'm not doing enough.
Share
Samantha Barry
00:32
Welcome back, I'm
Samantha Barry
, the editor in chief of Glamour
and this is She Makes Money Moves.Share
00:38
Saving for retirement can feel like flossing your teeth or cleaning your closet. You know you should, but it's easy to put off and tell yourself "I'll worry about it another day". But if you ignore any of those things, you're setting yourself up for some major headaches down the road.
Share
00:55
If you're young and you haven't prioritized retirement savings, you're not alone. A 2018 report by
the National Institute On Retirement Security
found that 66% of working millennials had nothing saved for retirement. Today's guest is in that 66%.Share
01:14
My name is Inisha Brooks, I am 38 years old. I reside in
Detroit
, Michigan.Share
Samantha Barry
01:24
This is her story.
Share
01:27
My first job ever, I was a golf caddy. I was almost 14 years old. I was always eager and ready to work, I always wanted to make my own money. I want my own, I don't want to have to ask. I don't want to have to go through the essay of why I want to get this. So I just wanted my own money and I wanted a car.
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Samantha Barry
01:45
With those first wages, Inisha learned about the power of saving.
Share
01:49
I started buying school clothes and school supplies for myself. That's when I started kind of taking care of myself, because I wanted to buy what I wanted, and I did also start saving for a car. Yes, a Escort, the old like, hatchback as like, the throwback ones. It was baby blue, I'll never forget it. But you know, it was a car. It was freedom.
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Samantha Barry
02:13
When Inisha went to college a few years later she learned a much harder financial lesson.
Share
02:18
I totally screwed up my credit in college. Okay. So, my freshman year I did go away to school and I was not working. I pretty much was just going to class and kind of like, you know, living off of credit cards and then I just ended up not paying them.
Share
02:36
And I'm not really the type to call home and ask for anything. So in my mind I'm like "Ah, I'll just figure it out later". You know, it was too far gone, it wasn't high on my priority list.
Share
Samantha Barry
02:46
After graduating with a degree in criminal justice, Inisha was hired by a juvenile detention center. She liked the work, but it didn't pay enough.
Share
02:55
You know, I tried to find other jobs, you know, in the field of like criminal justice, working with children and it just, were not paying enough. I kind of felt defeated.
Share
Samantha Barry
03:04
By this point it was 2009, and Inisha was four years out of college. While she tried to figure out her next professional move, Inisha decided to step off the career path.
Share
03:14
Ended up becoming a homemaker for a little bit of time. It just gave me time to kind of sit down and not just... you know, I have been learning everything from school and like, now I had a chance to sit down and look at everything that was going on around me. And you know, and take that into account.
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Samantha Barry
03:33
In 2014, Inished welcomed a son. And a year after that, she got a call that led to an opportunity.
Share
03:40
My cousin calls me and says, "Hey, my wife's brother is looking for an assistant at his property management company." And I said, "Okay, well, as long as they let me be flexible with my son, I'll do it".
Share
03:53
I didn't care what they were paying me, I needed my own money. So I was right in there for $10 an hour and it wasn't even about the money, I was just learning, like, I'm just learning so fast because I'm thrown right in the middle of everything.
Share
Samantha Barry
04:05
Although she was hired as an assistant, Inisha quickly took on a lot more responsibilities.
Share
04:11
I was doing a lot more than what they expected I would be able to handle. And so it got to the point where my boss pretty much said, "You need to get your real estate license". Because I was doing so much, that I really did need to be licensed.
Share
04:28
So I said, "Okay, you know I'll do it". I passed my sales exam and she paid me more money to stay there. So at that moment I was like "Okay, yeah, I think I found what I'm supposed to be doing".
Share
Break
Samantha Barry
04:44
Hi, this is Glamour's editor in chief, Samantha Barry, host of She Makes Money Moves brought to you by Visa. The pandemic has wreaked havoc on black and women owned small businesses. We know that having a simple digital tools and an online presence can be make or break for the survival of small businesses. We all need more time in the day and small business owners also need information, Visas, practical business skills has got that they free educational resources and interactive tools to help entrepreneurs and business owners around the world start manage and grow their businesses. Visa is committed to helping 50 million small businesses giving them the digital tools, partner offers and information. They need to start run and grow a digital first business because economies that include everyone everywhere uplift everyone everywhere connect with Visa at practical business skills dot org.
Share
05:40
Welcome back to She Makes Money Moves, I'm
Samantha Barry
.Share
05:43
After a few false starts, Inisha had finally found a job that both paid well and allowed her the flexibility to raise her son. But it wasn't a job that came with a retirement savings plan. And so at age 38 today, Inisha doesn't have savings for her retirement.
Share
05:60
She's thought about real estate opportunities that could potentially earn her residual income in retirement, but she doesn't have a clear path to financial success. She's also unsure of how to set her son up for success, but she did just open a savings account for him.
Share
06:15
So he's like, "Oh my gosh", he's like, "So is it a big vault? Like, can I swim in it?". I'm like, yeah, no, you cannot. He thinks it's like one big safe in like
Scrooge Mcduck.
Share
Samantha Barry
06:26
She's having these big money conversations with a six-year-old because she feels like she waited too long to focus on her financial future.
Share
06:33
Like making money make money, like making money work for me. That wasn't even a concept, I didn't even know that was possible.
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Samantha Barry
06:42
But now she's ready to lean in.
Share
06:44
How can I not work for the rest of my life? Like, how can I retire earlier? How can I go on vacation longer? You know, how can I get what I want without having to do as much for it?
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Samantha Barry
07:01
For today's episode, we're welcoming back the budgetnista, Tiffany Aliche, a
New York Times
best-selling author and all-around financial fairy godmother. So, Tiffany, Inisha is 38, she has a six-year-old son, and she thinks she's getting a late start when it comes to thinking about retirement. But she's not late, right?Share
Tiffany Aliche
07:18
Not a late start Inisha, it's not. And women are so hard on themselves when it comes to money. But you know, it's almost like, I tease women and I say, you know, if you were to fall now and like, say if you broke your leg, would you be mad at yourself you didn't know how to set your own bone? It's like, no, I didn't go to medical school.
Share
07:35
Especially from women, I tell them that it's not a competency issue, it's a confidence issue. Women will tell me, oh, I don't know how, I'm like, oh, but you can do a real estate transaction? You can raise a whole human being? If you can do those things, I promise you you can with a little bit time.
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Samantha Barry
07:51
So true. Speaking of raising a human, should Inisha be prioritizing her son savings over her own? What's the move there?
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Tiffany Aliche
07:58
So your son, he has so much time, you know? And not that you don't have a ton of time too, but he's got way more time than you do. So what I'm wanting is for you to prioritize your retirement. I know that Inisha it looks like that she's self-employed with her,, as a real estate agent, you know, so she might not have access to a
401K
.Share
08:19
So she's gonna want to look into something called a
SEP-IRA.
SEP stands for simplified employee pension, and it functions just like a 401K
. It has the same maximum limits as a 401K
. The only kind of caveat is that with the 401K
, the company puts money in and then I, as an individual, Tiffany, I put money in right?Share
Samantha Barry
08:40
Only the individual contributes to a
SEP
.Share
Tiffany Aliche
08:43
So, thinking about setting up a
SEP
for herself, so she can start setting aside money for retirement in a traditional way. Because I know she also wants to look at having a retirement plan as it relates to real estate, but I want her to be diversified. Traditional retirement as well as using real estate.Share
Samantha Barry
08:58
Right? So she's not putting all of her financial eggs in the real estate basket or the investment basket. But what do you think about relying on real estate revenue in retirement?
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Tiffany Aliche
09:08
So I think it can be a great investment, but just like with anything, there are cycles, right? So right now, homes are like, they are astronomical. Literally I've seen homes in my neighborhood that we're going for 400 and something 1000, now going for 600.
Share
09:23
But the problem with that is, and that's why you have to be mindful to not only be in real estate, is that there's an inflation happening. It'll be great if you're selling, because you can get a ton of money out, but if you purchased during this time, you might be overpaying, because a year from now... you might have bought it for 600,000 and then it goes back down to the 400. And now you're what they call under underwater when it comes to your mortgage.
Share
09:45
So things to consider when you're considering making money for real estate. One, appreciation. You know, you buy a thing, you fix it up or whatever. You buy it, then you sell it, you get your money.
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Samantha Barry
09:54
Right, like Chip and Joanna Gaine. You buy it, you fix it up, you sell it. What's the second option?
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Tiffany Aliche
09:59
So, imagine that you bought a $50,000 property.
Share
Samantha Barry
10:02
Okay, so you buy it and you rent it out for, say, $1,000 a month.
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Tiffany Aliche
10:05
Right? So, you think to yourself "Well, that doesn't seem like a good deal", but imagine that $50,000 sitting in a savings account. Is the bank going to give you $1000 a month? No, it's almost like the houses the bank and then 10 years from now, even if you sell that house for that same 50-
Share
Samantha Barry
10:19
You've sill made a lot of money. So even if you break even on the sale, the house made you $120,000 over 10 years. Not bad.
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Tiffany Aliche
10:27
What I do like is the fact that Inisha is a real estate agent. She has a lot of knowledge, he's not just coming kind of like blind into this area.
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Samantha Barry
10:34
That's so true. What else should she be doing?
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Tiffany Aliche
10:36
So, for retirement, ideally you want to follow something called the 4% rule.
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Samantha Barry
10:40
Okay, so the general rule of thumb is that, ideally, you want 25 times your planned annual spending in savings before you retire. Where does the 4% rule come in?
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Tiffany Aliche
10:50
During retirement, the 4% rule says that you withdraw 4% annually for your annual, like, you know, living expenses. Because on average, the market is going to yield 8 to 10%. So let's just say 8 to be on the super safe side.
Share
11:05
So that means you have this money, this 25 times your income more expensive set aside, you're only pulling 4%, even though it's likely generally yielding about 8%. So that means you're never really touching the principal and that money will always be able to generate that income for you.
Share
11:21
So that's what she should be thinking about, because that will leave you comfortable and not having to work anymore.
Share
Samantha Barry
11:26
What if her savings are on track and she has extra money one year? Should that go towards her retirement or should she be saving for her son?
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Tiffany Aliche
11:32
Let it go to you, because you want to make sure that you are good and well. Because if your son ever needs anything he can lean on you versus you leaning on him, because he's six and has so much more time.
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Samantha Barry
11:43
Got it. Keep your money, Inisha. I know Inisha's employer doesn't contribute to her
401K
, but a lot of employers do match employee contributions up to a certain percent. And women aren't taking the money. What does that look like?Share
Tiffany Aliche
11:56
If it's 5% and you put in 3, they'll just put in 3.
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Samantha Barry
11:60
They won't put it. So you're leaving whatever that version of 2% behind.
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Tiffany Aliche
12:04
And think about that compounding interest. Think about that over years. So one, make sure you're getting your match, right?
Share
Samantha Barry
12:11
Don't leave money on the table. Another thing I want to talk about is when Inisha wants to retire. I've been hearing a lot about this term FIRE. What's that Tiffany?
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Tiffany Aliche
12:20
So, FIRE stands for financial independence, retire early. So typically what FIRE looks like is that you try to make as much as you can, and try to spend as little as you can. I mean, the frugal of the frugal.
Share
Samantha Barry
12:33
Like ramen noodles kind of stuff.
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Tiffany Aliche
12:34
So you do that for however many years it might take you, 10 years, 15 years. And then you put that money aside and you invest it and then you lean into the 4% rule.
Share
Samantha Barry
12:43
So you read a lot about those people who are really focused on retiring early. But in reality, in my world, I don't see a lot of people actually doing it. How come?
Share
Tiffany Aliche
12:50
You know, because they just have to keep working. Because quite honestly, for many people, especially if you live in a big city, the expense of your lifestyle, and none of it because you're being irresponsible-
Share
Samantha Barry
13:02
Just living.
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Tiffany Aliche
13:03
Yeah, groceries! You're like, what? You know, the expense of your lifestyle is so expensive in comparison to what you're bringing home. Inflation is real.
Share
Samantha Barry
13:11
It is, oh my God. And so for people who are starting to think about retirement now, what final tips do you have for them?
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Tiffany Aliche
13:18
I would say you want to at the very least start with some sort of automated system. So if you have a
401K
, ask your company - and they likely do, they have a target-date fund. So target date fund is typically like, a mutual fund that you put your money into. Almost like a savings account. And the target date is the day that you've chosen that's closest to your retirement year.Share
13:39
You'll see the years on your target-date fund at work, and you can pick the one that's closest to when you want to retire, and then you just put your money in it and it rebalances for you. It says, "Oh my gosh, okay, Sam is one year closer to the target date fund. So a little less in stocks, a little more in bonds".
Share
13:54
And so it does that for you. And by the time you've reached your target date, your money is super conservatively invested and ready for you to pull out. So if you don't do anything else, and what I like about mutual funds is that it's a basket. It's a basket of stocks and bonds and other investments. So you don't have to pick and decide, because sometimes it can feel so overwhelming. Those things can be chosen for you.
Share
14:15
Now, because you're chosen for you, there's a cost. Cost is called an expense ratio, and a target date fund and mutual funds are typically actively managed, meaning like an actual person, you know, is doing the management for you.
Share
14:29
So you're going to have to pay a higher expense ratio versus if you were to choose something for example like an ETF, which is exchange-traded funds. Which is similar to a mutual fund except for you can buy and sell that basket in the market. So you're buying, you're not just buying one stock, you're buying a basket, but you can buy and sell, just like you can in stock.
Share
14:47
And those are passively managed, so the expense ratios are lower. But if you don't do anything else, you can put your money in a target-date fund. That is better than what 95% of people are doing. Even if there's a fee attached, so what?
Share
Samantha Barry
14:59
Also make it a bit fun, like, knowledge is power. Don't be afraid of it, lean into it.
Share
Tiffany Aliche
15:02
You know, you can start with Youtube University. Slowly but surely, take classes. My sisters and I have created a investment club.
Share
Samantha Barry
15:09
Love that. What's it called? Does it have a name?
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Tiffany Aliche
15:10
Well, we just call ourselves The Elite State Stars.
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Samantha Barry
15:12
Oh, I love it.
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Tiffany Aliche
15:14
And so, my sister Carol in particular is like super into stock, she does all this research. And so she'll text us about like, for example, when
DocuSign
came out, because we use it all the time and I'm sure you do you guys do too, right? And so I remember when it was just first coming to market, and she was telling us about it and I was like, oh my gosh! I used DocuSign
.Share
15:32
She said "It's likely gonna be this price, and if it is that price it's gonna be a good buy". So we all went out and bought it, and now it's up tremendously. But that's the kind of like talk that we have in our sister chat. So WhatsApp is like, I mean, if you've got family like me, all over the world, WhatsApp is free. And you can create a WhatsApp channel to talk about money. At the very least make money a common conversation.
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Samantha Barry
15:52
I couldn't agree with you more Tiffany, we love talking about money. Thank you for joining us again.
Share
16:02
Thinking about the future can be daunting. But if you aren't planning for it, there's no way you can be prepared. Even if you don't make a choice tomorrow, the time to start learning about your options is today. Ask human resources about your employer's financial planning tools.
Share
16:19
Check out the resource page on the budgetnista. com or read Tiffany's latest book, Get Good with Money. We'll drop some links in the show notes for you. You might make some mistakes along the way in your financial journey, but the biggest mistake you can make is doing nothing.
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